Clean tech and green finance poised for $16.5 trillion takeoff
The global energy transition has begun, with renewables, clean technology and green finance sectors set to receive at least $16.5 trillion of investment as countries embark on climate plans agreed as part of the Paris Agreement, according to a new report from influential ratings agency Standard & Poor's (S&P).
The report — released Wednesday — predicts the market for renewables and green finance will "take-off" as investors respond to the dual incentives of a renewed focus on climate policies from national governments and the rapidly falling price of clean technologies.
The energy sector will be the sector most affected by the low-carbon transition, with coal-fired power plants closing in ever-greater numbers as investors switch allegiances to renewables, the report suggests. S&P estimates that in the next 15 years climate targets delivered by India and China alone could double the world's wind and solar capacity.
It also predicts the low-carbon transition will reach a tipping point, as falling costs and more clean tech breakthroughs ease the political pressure on policy makers to respond to short term cost concerns by ditching or diluting green policies.
These changes radically could change the global investment climate, S&P suggested. "Many players in the commodities sector could become increasingly cautious about investments in high-cost, high-carbon projects, as these are the ones that are most vulnerable to stranding if carbon policies become more restrictive or to resulting softer demand," the report said.
Meanwhile, institutional investors and sovereign wealth funds will start to pay more attention to the carbon intensity of their portfolios, the report added.
However, S&P warned this investment is dependent on countries delivering on the climate plans agreed at Paris. The firm calls on governments to match their pledges with policies and for the finance community to "put their money where their mouth is" and bring forward the trillions of dollars needed to set the climate plans in motion.
S&P also joins the growing number of institutions calling for an expansion of carbon pricing systems. The report backs plans to reform carbon markets and the introduction of carbon tax policies to ramp up the pressure on industries to invest in cleaner sources of power — particularly in sectors or regions where other incentives for low-carbon investment are in short supply.
"We believe a higher and more predictable carbon price is necessary to offer increased visibility to generally long-term investments, as well as to economically justify the investment decision into low-carbon solutions," it said.
The report follows the release earlier this week of analysis from U.K.-based non-profit Influence Map, which revealed that the Paris summit prompted a "tipping point" in corporate support for climate policy. More than half of the world's most powerful industrial companies now back climate action to curb dangerous levels of global warming, with the negotiations triggering a "significant shift" in corporate behaviour towards climate policy, the report suggested.